Cracker Barrel Old Country Store Inc (CBRL) 2003 Q4 法說會逐字稿

Good day everyone, and welcome to the CBRL Group conference call. Today's call is being recorded and will be available for replay starting today at 2:00 p.m. Eastern Time and run through September 18th until 8:00 p.m. Eastern Time, by dialing 888-203-1112, and entering confirmation code 530092. At this time, for opening remarks and introductions, I would like to turn the call over to the Chairman of the Board, Mr. Dan Evins. Please go ahead, sir.

Thank you very much. Good morning, everyone. I hope we aren't interfering with any 9/11 ceremonies in your office. We have no way of knowing when those things are observed.

In any event, with me is Mike Woodhouse, our CEO, Larry White, our Chief Financial Officer, and Jim Blackstock, General Counsel for the CBRL Group. We hope our earnings release is satisfactory to those of you whose reports have displayed confidence in our group. We're certainly well pleased with it. That being said, I'll turn this over to Larry White for more details.

Thanks, Dan. Thank you to our listeners on our conference call and webcast for your interest and participation this morning. Hopefully, everyone had an opportunity to see this morning's press release, announcing our fiscal 2003 year-end rules and providing an update on current trends and the company's guidance for earnings for the first quarter and full year of fiscal 2004.

As a reminder and in compliance with regulation FD, we don't review or comment on earnings estimates made by other parties, nor do we provide continuing updates of or express continuing comfort with our own guidance and trends, except in broad public disclosures, such as we have done this morning. We urge caution to our listeners and readers in considering the information on current trends and earnings guidance.

The restaurant industry is highly competitive, and trends and guidance are subject to numerous factors and influences that can cause future actual results to differ materially from such trends and guidance. Some of those factors are described in the cautionary description of risks and uncertainties found at the end of this morning's press release, and we urge you to read that language carefully. The company disclaims any obligation to update disclosed information on trends or guidance, and should we provide any updates after today, they will only be made by press release or in periodic filings with the SEC under forms 10-K, 10-Q, and 8-K.

With those cautionary reminders aside, let's review this morning's good news, and as Dan said, for yet another quarter, we think it's really good news. Bottom line, we recorded diluted net income per share for the fourth fiscal quarter of 70 cents compared with 56 cents a year ago. That's an increase of 25%.

In fact, all four quarters in fiscal 2003 were marked by year-over-year increases in diluted net income per share of at least 25%. And for the last eight quarters, we've achieved diluted net income per share growth in excess of our stated objective of 15%. Further, fiscal 2003 marked the fourth consecutive year where cash provided by operating activities exceeded our outlook for purchase of property and equipment, our capital expenditures, by a wide margin -- by nearly $120 million in fiscal 2003, as a matter of fact.

That's a lot of good news, and we now would like to look at some of the details. Revenue in our fiscal fourth quarter ended August 1st 2003 increased 6.3% from last year's fourth quarter. That's $580 million compared with approximately $546 million last year. The increase came primarily from new unit openings and by moderate increases in comparable store restaurant and retail sales in our Cracker Barrel Old Country Store concept and in Logan's Roadhouse.

Cracker Barrel comparable store restaurant sales for the quarter were up one-tenth of a percent from a year ago, a quarter in which we had strong comps of positive 3.9%. The results for this year reflected a 1.5% higher average check, which included about a 9/10th percent of higher menu pricing, and guest traffic was down about 1.4%. We're going to lap that 9/10th percent of menu pricing in November; and as our practice, we don't disclose future menu pricing plans, so we won't be commenting on that this morning.

Although sales were positive, guest traffic was not; and softness was greatest at dinner. Only weekday breakfast recorded positive guest counts for the quarter. All eight of our geographical regions had positive breakfast comps, but just half of our regions were positive overall, with the softest results in Florida and Georgia.

But even though there have been some challenges, it's important to observe that Cracker Barrel has now recorded four consecutive full fiscal years of increase in comparable store restaurant sales, and restaurant comps have been positive in 13 of the last 14 quarters. Cracker Barrel comparable store retail sales in the fourth fiscal quarter were up 1.3% compared with a positive year-ago quarter in which retail comparable store sales were up 1.9%.

When guests come to a Cracker Barrel store, their purpose primarily is to eat, and retail purchases tend to be more discretionary, probably even more so in a tough economic environment such as we seem to continue to experience. Part of our developing retail strategy is to increase the freshness and broaden the appeal of our retail merchandise selection, and to add a greater variety of product at lower price points. The idea being to encourage more frequent and impulse purchases.

This quarter our merchandise planning paid off, with retail sales increases in excess of restaurant sales increases, and we saw successes with such new products as the male-target tools and gadgets that we've spoken of before,

summer T-shirt selection that sold for $12.99, and our proprietary collection of heritage music CD's. We also have continued to benefit from earlier availability of seasonal fall merchandise.

Rounding out our comparable store sales results, our Logan's Roadhouse concept reported an increase of 0.7% in comparable restaurant sales, including a 1.4% increase in average check, which included about 0.7 of menu pricing. That means a 7/10th percent decrease in guest traffic, if you are doing the math. As with Cracker Barrel, this reflected comparison with a positive year earlier quarter, when comparable restaurant sales were up 1.3% and guest traffic was up 1.8%.

In July, Logan's lapped its last menu price increase -- and again, our policy is not to discuss future menu price increase strategies before they're implemented. Clearly, we've been cautious with our menu pricing in both concepts in this uncertain economic environment, yet we have been successful in achieving and improving operating margins without relying on aggressive price increases. We continue to view alcohol sales at Logan's as both a challenge and an opportunity, with our alcoholic beverage mix off about 40 basis points from the year-ago quarter, some of which reflects relatively weaker dinner versus lunch sales at Logan's. Our alcohol mix was under 9% in fiscal 2003.

During the 4th quarter, we opened eight new Cracker Barrel Country Store units and three new franchise Logan's Roadhouse restaurants. For the full fiscal year, we opened 23 Cracker Barrel stores, 12 company-operated Logan's restaurants, and four franchise Logan's restaurants.

Let's continue on down the income statement. Operating income for the fourth quarter was up 16.1% on the 6.3% revenue increase, and operating margins improved 80 basis, points from 9.1% to 9.9% of revenues. This caps a year of solid and consistent operating income growth in which operating income in all four quarters increased more than 15% from last year.

In a departure from earlier recent quarters, however, the improvement from the fourth fiscal quarter primarily reflected lower labor and related expenses, other store operating expenses, and general and administrative expenses, while cost of goods sold was flat as a percent of revenue. This is the first quarter, I believe, in our string of improving operating margins that the improvement hasn't come primarily from cost of goods sold.

Improvements in Cracker Barrel retail cost of goods sold, however, were offset by higher cost of goods sold at Logan's. Food cost management at Cracker Barrel was favorable to our allowed or target levels, and it was our second best performance of the fiscal year, but last year it happens was marginally even better, so that was a tougher hurdle for us to get over in this quarter.

A continuing mostly benign commodity cost environment, including the effects of favorable purchasing initiatives we've undergone, and modest menu pricing, helped keep food costs at Cracker Barrel flat as a percent of restaurant revenues. The greatest price pressures of Cracker Barrel in the fourth quarter were in bacon, eggs, and certain shortening products, with lower costs in such areas as poultry and ham, orange juice, and potatoes.

Logan's had a higher product cost than a year ago, however, that primarily was reflecting beef costs, which are capped under a supply contract that we have that runs through the end of this calendar year. It was still higher than last year's prices. Logan's also was affected by lower alcohol mix and a higher alcohol cost of sales.

Offsetting the higher food cost, retail cost of goods was improved year-over-year in the fourth quarter. Retail benefited primarily from improved availability of high-margin seasonal merchandise, partly offset by higher mark-down activity.

Retail shrink was closely in line with our expectations, which represented a continue improvement over prior years. A similar cost element in store damages also was improved from prior years. These two manageable cost areas, shrink and in-store damages, were the focus of improvement efforts in the retail management bonus plan in our retail operations function.

Labor and related expenses was 30 basis points lower than last year, reflecting improvements at both Cracker Barrel and Logan's, including lower Workers' Comp expenses, lower hourly labor costs as a percent of revenue. Our Workers' Compensation programs have a substantial level of retained risk. We do a high level of self-insurance, or deductible, and we determine our reserve requirements, including ID&R's, through an actuarial study done late in the fiscal year.

Although this is an area of uncertainty and underlying cost pressures, we're encouraged with our results. In addition to adding some key in-house staff in the last couple of years, we changed to a new outside claims administrator last year, both of which we believe have resulted in improvements in our claims management.

While the results are at a very early stage, we're pleased that incurred claims for fiscal 2003, after 12 months, are the lowest in five years at Cracker Barrel. Wage inflation for our non-tipped employees was down slightly at Cracker Barrel from a year ago, reflecting the increased emphasis we've put on hourly wage administration.

We also have focused on overtime management through labor scheduling and staffing best practice initiatives, and our overtime rates were improved from last year's fourth fiscal quarter. Group health expenses have been under some pressure, but group health costs, while up, have not been up as much as we originally expected, reflecting success of planned design changes made in recent years.

Other store operating expenses in the fourth quarter were lower than a year ago by 30 basis points, reflecting slightly better cost in several areas, including depreciation, advertising, and credit card fees, partly offset by higher utilities and maintenance expense. General and administrative expense was nearly unchanged from a year ago in dollars, improved only 20 basis points as a percent of revenues in the fourth fiscal quarter.

You may have noted that G&A expenses were lower in the fourth quarter, on a dollar basis than the third, but primarily reflected lower professional fees and bonus expense acruals. Interest expense in the fourth quarter was slightly higher than a year ago, which reflected higher average outstanding borrowing, primarily representing the effect, including accretion, of the zero coupon convertible debt we issued in 2002 and that was partially offset by lower interest rates.

So that was not a big change year-over-year. Wrapping up the fourth quarter, net income of 35.5 million was improved 16.6% from the $30.5 million a year ago. Diluted net income per share of 70 cents was improved 25 cents from the 56 cents reported in the fourth quarter last year, and was in line with our guidance of an increase up to the mid 20% range.

For the full fiscal year, we achieved a 16.1 increase in net income on a 6.1 increase in revenues. Diluted net income per share for the year of $2.09 was improved 27.4% from a year earlier, and each quarter during the year had improvements of 25% or better, well ahead of our stated long-term objective of 15% or better growth in diluted net income per share.

We're very pleased with this solid performance in the face of a difficult economic and consumer confidence environment, and we're also pleased with the broad contributions to our operating margin improvements. A further measure of our financial results is found on our cash flow statement, where we've reported a 44 million dollar increase in fiscal 2003 compared with 2002, and net cash provided by operating activities.

The approximately $241 million of cash provided by operating activities, up from $196 million a year earlier, was for the fourth consecutive year, well in excess of our needs for capital expenditures, or purchase of property and equipment. In fiscal 2003, we reinvested over $120 million back into the business in capital expenditures, which was up from approximately $97 million in fiscal 2002. The remaining cash generated by the business, again, went primarily toward share repurchases.

During fiscal 2003, our board of directors again authorized various share repurchase plans and we repurchased approximately 5.3 million shares under those authorizations, for an aggregate outlay of approximately $167 million or just over $31 per share. We presently have a remaining authorization to repurchase approximately 660,000 shares.

Since we began our share repurchase activity four years ago, we have spent almost $525 million to repurchase approximately 21 million shares. At the end of the quarter, we had approximately 37.9 million shares outstanding. Finally, in this morning's press release, we updated our current sales trends and made our initial earnings guidance for fiscal 2004.

I again urge you to consider the cautionary discussion of risks and uncertainties at the end of today's press release and understand the inherent risks associated with trends, targets, guidance and estimates in a competitive industry such as ours. Furthermore, in today's unsettled economic environment, uncertainties may be even greater than other times.

We remind you that we disclaim any obligation to update this information, other than in periodic filings with the SEC from time to time. Also, we won't offer any further guidance nor after today express continuing comfort with today's disclosure other than in public filings or by other broadly disseminated means, such as press releases from time to time.

This discussion of trends and guidance, as does earlier -- other earlier parts of today's discussion and press release, contains forward-looking statements provided pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. It should be evaluated in the context of the uncertainties described in this morning's press release.

At this early stage of fiscal 2004, Cracker Barrel comparable store restaurant sales are up approximately 1%, including approximately 1.5% higher average check. And retail is up approximately 9.5 to 10%. Six out of eight of our geographic regions have reported improvements in comparable restaurant sales trends versus prior year from what they ran in the final quarter of fiscal 2003.

Two regions are essential unchanged in trend. And each region is up more than 6% in retail comparable store sales. So it's -- we're seeing some broad base improvement in trends there. Logan's comparable restaurant sales are up approximately 1 to 1.5% and that reflects increased guest traffic. The strong retail sales trends reflect better availability of seasonal merchandise, which you may recall was delayed last year by the effects of the West Coast Dock Strike.

We also have an improved assortment of seasonal merchandise, and we had a strong porch sale event relative to last year. A porch sale is a clearance sale event that we hold from time to time, where discontinued merchandise is displayed on tables on the front porch in front of the stores and sold at attractive markdowns.

This year it was held on Labor Day weekend, which was a week earlier than last year. A number of companies have talked about the big electricity blackout. In our case, the electricity blackout in the Northeast and Midwest had less than a half a percent unfavorable effect on quarter to date sales trends, so it was not a large number.

Our present guidance for diluted net income per share for the first fiscal quarter is for 52 to 54 cents as compared with 45 cents a year ago. We presently expect total revenue growth of approximately 8 to 9% in the first versus last year. Our guidance reflects achieving modest comparable store restaurant sales increases for the first full quarter, with comparable store retail sales continuing to be strong, but maybe not as strong as quarter to date trends thus far.

For each of the remaining quarters of fiscal 2004, we presently expect to meet or exceed our long-term objective of 15% growth in diluted net income per share compared with the fiscal 2003 quarters. And we presently expect full-year growth in revenues of approximately 8%. Our unit opening plans include four new Cracker Barrel stores in the first quarter, three in the second quarter, and 24 for the full year, with the other remaining 17 spread over the final two quarters.

We also presently expect 11 new company-operated Logan's restaurants to be opened in this fiscal year, including five in the first quarter, two in the second quarter, and the remaining four in the third quarter. We also expect our Logan's franchisees to open four new units this fiscal year. Consistent with our objective of continual incremental improvement we expect further improvement in operating margins in 2004, but at a lesser rate than we achieved in 2003.

Capital expenditures are projected to be in the $140 to $145 million range, and we expect this to be the fifth consecutive year in which cash flow provided by operations exceeds our capital expenditure outlays. We do face uncertainties, as always, as we enter this quarter and fiscal year; and our guidance reflect a range that considers various areas of risk and opportunity.

For example, our greatest apparent uncertainty in food costs right now is in beef. Primarily in the second half of the fiscal year. With some near-term pressure on bacon and egg prices, at least partially offset by better cost for potatoes and certain chicken products. We will be keeping an eye on this situation and reflecting any developments in our future guidance.

As always, we expect to update sales trends and guidance periodically as the quarter progresses with our next update in four weeks. So we reported good results this morning. We're reporting a 25% increase in diluted net income per share for the quarter, and 27% for the year. Another year of strong net cash flow generated by the business, and we're disclosing strong guidance for the new fiscal year based on solid recent sales trends in our present outlook.

As I said in the beginning of my remarks, we think that's a lot of good news and we're very pleased to be reporting it this morning. With that, I thank you for your patience with my financial review. I'd like to introduce Mike Woodhouse, our President and Chief Executive Officer, who has further remarks on operating trends and initiatives. Mike?

Thanks, Larry, and good morning everyone. Pleased to report yet another strong quarter and another strong year for CBRL Group. We're very pleased with the consistent performance with four quarters at 25% EPS growth or better in 2003, and now a string of eight quarters at or above or long-term growth of 15% or greater growth in EPS.

We're achieving these results by sticking to our game plan and growth concepts, by focusing on the quality of execution to make certain we're providing the best possible guest experience every time, and at the same time finding new and betters ways of doing everything we do, while never compromising the guest experience.

So even in the challenging economy, we've seen in the past two years we've sustained our basis strong repeat business and we've delivered margin improvements even at times where we haven't had as much leverage from strong traffic gains. A few examples of areas where we've achieved improved costs or wage rate, management in both concepts where we've taken advantage of a softer labor market, improved scheduling in both concepts to maximize sails sales, third example is lower turnover, again taking advantage of a softer labor market by making turnover management a priority, using incentives to support this focus.

Another example the a management of Workers' Comp expense. We've upgraded the leadership in this area in both Logan's and Cracker Barrel and changed the claims management process, the result in fiscal 2003 Workers' Comp expense was significantly below prior year and below aggressive plan. This gives us increased confidence in our ability to manage and control these expenses into the future.

Yet another example is group health, where we have the largest exposure in Cracker Barrel with approximately 12,000 employees participating in our comprehensive plan. We made plan design changes and intend to contain costs, while at the same time providing quality of care we expect for those who need it. The result of this was a 7% increase in per-participant group health cost in 2003 in an environment of double-digit inflation in this area.

These are just a few examples of how we were able to contain cost meaningfully below the trend line in fiscal 2003. Now I'd like to cover some brief highlights from the quarter, then talk about our expectations for the new year.

In Cracker Barrel we saw positive performance in both restaurant and retail same store sales in the quarter, and we were pleased with the positive trend of retail versus restaurant, because we're more focused on developing our [INAUDIBLE] retail sales by taking advantage of the approximately 1200 people who make the trip from the front door to the dining room and back on a typical day in the Cracker Barrel.

Our objective is to sell at least one retail item to as many of these guests as possible. Everything we do in retail supports this goal, and the positive results in the fourth quarter followed by the stronger performance of our first quarter speaks to our success of these efforts. On the restaurant side, we ran our new broccoli cheddar chicken product during the fourth quarter, and we saw strong results.

Ultimately, this product came very close to the homestyle chicken performance, homestyle still holds the record for our highest-selling promotional product. But now we have another really strong performer to put into our promotional rotation.

Rounding out the quarter, in Cracker Barrel, we continue to see progress in turnover. Management turnover was down to 18l% in the quarter compared with 20% last year, and flat compared to the year as a whole at 23%. Hourly turnover ended the year 113%, down from 128% the year before and turnover for the key par four group continued at 24%. At Logan's, we were pleased to report positive sales for the quarter.

The focus during the quarter was on operation execution, where we rerolled the high five program to reinforce the fundamentals of guest service, using twice a day pre-meal meetings with all team members. [INAUDIBLE] and to reinforce the five key priorities in delivering the Logan's experience. As at Cracker Barrel, we continue to work on labor costs through the management of hourly wage rates and turnover.

We brought non-tipped hourly wage [INAUDIBLE] at Logan's down below 1% in the fourth quarter, and hourly turnover for the career was down -- was 96%, down from 126% the year before; and management turn over was also down from 23% last year to 18% in the fourth -- in the year as a whole this year.

So, fiscal 2003 was a very successful year for us but now it's history, and we're already six weeks into the new year. So let's talk about fiscal 2004 and what our expectations are. Externally, we continue to view the economy cautiously until events prove otherwise, so we'll continue to put our time and energy against those things we can control.

In Cracker Barrel, as we've talked about before, we've developed a very loyal following over the years, with a high percentage of all guest visits representing repeat visits. So our number one priority is to keep this call group coming back, and the number one opportunity is to increase trial, because we know from the research that we have a very high success rate in converting trial to repeat business.

Execution is fundamental to both of these objectives, and as I've reported many times, our best practice initiatives have become a way of life. We'll continue to reinforce the five best practices again in 2004 to build on the foundation we've established over the past three years. The promotional calendar on Cracker Barrel will continue, with a combination of tried and true favorites and some new products coming out of our development pipeline.

All promotions will continue to follow the guidelines of strong guest appeal demonstrated by a successful test markets, attractive price point, strong dollar margin and ideally, fast out of the kitchen. The dinner day part is an opportunity for Cracker Barrel. Operationally, we're addressing execution with a table turn in the stacking best practices, and we're especially working on scheduling so that our best people from the regional vice president level down to the hourly's are scheduled against the highest volume times, including the high volume dinner periods of Friday, Saturday, and Sunday.

The menu is an important part of our approach to be building dinner sales, as well as making sure that the promotions, which are going to be supported by radio in 20 to 25% of the system, are competitive with dinner with testing the next evolution of the menu, which is going to put more emphasis on dinner without detracting from the other day parts. A new opportunity we're looking at to build sales for this restaurant we term as the "guest traffic flow", through the shop, into the dining room and back.

Although the primary focus of the research we've recently conducted is to optimize the retail, we believe an opportunity to increase restaurant traffic by removing the bottle necks that exist at the [INAUDIBLE] stand and register. So we're going to be looking at the results of this research, and testing some changes during the second half of fiscal 2004. Retail is a key factor in the appeal of differentiation of the Cracker Barrel concept, and over the past three years we've been working hard on retail.

We've evolved the merchandise strategy, we've increased the number of lower price point items, we've developed a system with that of the people and the planning function, and we've increased the focus in operational excellence through the service sales program. All of this positions us for improved relative core performance by our retail business.

There's an indication of the importance of retail to us and the opportunity we see to incrementally add business. Both of the new board members we've added have a strong retail background and we welcome the value they can add as we continue to evolve our retail strategy. Three years ago, we shifted our merchandising strategy to focus on nostalgia.

Building on that base, we've now refined the strategy to recognize that what's nostalgic for each of us is different based on our age and background, so now we have a broader range of merchandise, all of which ties into the nostalgia theme, and as we focus on increasing purchases by guests already in our stores, we've expanded our licenses of merchandise to appeal to all segments of the customer base.

Finally, we recognize more clearly the strength of the seasonal aspect of our business and how important it is to have fresh product and inventory, so we've begun selling through all the merchandise more aggressively using a combination of port sales and in season and everyday mark-downs. The result today is fresher merchandise than we've ever had, and this, coupled with the seasonal focus is stimulating new interest in our retail offerings. We've also been upgrading the quality and appeal of our merchandise, while maintaining attractive price points. Let me give you examples of the various tactics we've used.

First is Collegiate Apparel, where we've substantially improved the quality and design from prior years, not only in this fall season. T his line is up 93% from last year. We introduced a little while ago a four-ounce Hershey chocolate bar which sells for 99 cents, and it has package and design from early nineteen thirties, advertising materials, and it's available exclusively at Cracker Barrel. We sold out of the initial buy, because the sell-through was at almost 500% of plan.

Our new line of gadgets and tools, which were intended to attract the male guests, which is an area we haven't strongly targeted in the past, were very successful. The -- this line generated about a million dollars of new sales during the summer season. Halloween merchandise this year was shipped to the stores earlier,and through the season to date, through last week, has generated 134% more sales than the previous year.

A final example, we have developed, as Larry mentioned, our own music label, Cracker Barrel Country Store Music Catalog, and in the fourth quarter, we rolled out the first 15 CD's of the heritage collection, which focuses on traditional form of American music. We try to make sure we have the highest quality product possible, and the artists are all regarded as leaders in their field. We expect more than $2 million in sales in the current fiscal year.

We're now putting together another collection called American legends. This collection will focus on the early years of classic headliners such as Hank Williams, Johnny [INAUDIBLE],Tommy Dorsey, and Roy [INAUDIBLE]. These are a few of the examples where the merchandise and planning teams have executed the retail strategy to achieve some outstanding results. All of this is supported by tighter and more focused retail operation where we've improved guest service and by scheduling retail hours to match restaurant traffic to maximize the sales opportunity.

We're currently rolling out an update to the service sales best practice initiative, where we're following the same processes as in restaurant operation where we train from the top down so that all of our retail operators know and support the initiative as it's rolled out. To support the top line focus in both restaurant and retail, we reenergized our marketing efforts with new leadership in the marketing department and a continued focus on building a way and at the same time ensuring that we're making the most effective use of the advertising dollars.

As an example of awareness building, we've just completed a test in Texas using our radio brand campaign supported by focus on execution, and during the period of the test, Texas performed better than any other region. This is a people business, and over the past two years we've made organizational development a priority and a way of life at Cracker Barrel. We began with the creation of the executive team three years ago, where we developed a team-based leadership style, which is now extended through out the organization.

In building the organization, we've deliberately blended internal experience and knowledge with selected hires from the outside at all levels to build the depth necessary to sustain our profitable growth. We have a performance management system which provides objective and timely feedback to every individual, and we've designed development tools to give everyone the ability to perform in their present job and to prepare for the next job.

The latest tool we've rolled out is the Master of Cracker Barrel business program, which is designed to prepare our general managers for the step up to the critical district manager role. In development at Cracker Barrel, we plan to open 24 new stores in fiscal 2004. This will be a mix of 18 on interstate and six off interstate.

Our strategy is to continue to build our dominant presence on the interstate, while at the same time continuing to develop marketing programs to support sustained sales growth in our off-interstate stores. With this approach, the majority of our new stores will continue to be on-interstate, as we selectively address off-interstate opportunities. We believe that Logan's is a substantial growth opportunity for CBRL. First and foremost, we're pleased to have Tom Vogel aboard as President and Chief Operating Officer.

Tom comes to us from [INAUDIBLE], where he was most recently Senior Vice President of Operations for the Red Lobster concept. In addition to his operations background, Tom brings strong experience in marketing, concept development, and food and beverage, all of which will be assets as we refine and implement the strategic direction for Logan's.

I think we have a much clearer idea today of the issues and opportunities facing Logan's than we did a year ago. We're in the process of developing a game plan which will be supported by the findings from the research we conducted over the summer, an which will be concluding in the next two months.

The key components of the plan will be to refine the brand positioning based on what guest expectations are of Logan's, and out of this will come an updated marketing strategy, menu strategy, and also development strategy as we understand better the sizeographics and demographics with Logan's guests. I also expect that we will be revisiting the standards of service to incorporate the guest feedback and expectations which are coming out of the research.

In the short term, we're conducting menu review, looking at over all quality, plate presentation, as well as competitiveness of the offerings, and we're starting with the appetizer section of the menu. As we move forward, we will be making the menu a high priority in our plans to differentiate Logan's and to outperform the competition. Also in the short term at Logan's, we're going to be focusing on executing other restaurants to our existing standards with an emphasis on improving the consistency across the system and over time.

One competitive opportunity we've been exploring this year is the take-out business. While we currently offer take-out, the competitive standard is evolving beyond where Logan's is today, and we will be looking for ways to improve our competitiveness in this area.

We continue to believe that our cost sales represent a substantial opportunity for Logan's, and we'll continue to efforts to improve alcohol sales; and expect to have more to report on this as we go through the year. In the development area, while the fiscal 2003 new restaurants as a group are performing well, we have opportunities to improve the consistency of performance.

We've been through an in-depth review of the real estate process of the pipeline, and as a result we've made substantial changes to the process and cut back to the pipeline to those locations where we have a high degree of confidence in success. So we expect to open 11 new units in 2004 then wrap up the opening week in 2005 and beyond as we refill the pipeline.

We haven't forgotten about the 20% growth goal, but in the immediate term it's more critical to have a robust process in place and make certain we're already developing quality new locations. Looking forward, we currently expect to be at the 20% growth rate by the end of fiscal 2005. Before I close, I'd just like to spend a minute on an update of the situation with our discrimination lawsuits. First, I'm able to report that nothing material has happened since our last conference call in May.

In the [INAUDIBLE] case, which is the employee discrimination case, as we've previously announced, the federal judge ruled to deny class certification in March of 2003, and subsequently the 11th circuit refused an appeal [INAUDIBLE] since the beginning of May. In October 2002, as we've also previously announced, the federal judge also denied class certification of the Thomas case, which is the public accommodation case, and the plaintiffs didn't appeal that case.

So in both cases, the lawsuits now consist of a small number of individual plaintiffs. In closing, I'd like to reiterate that we're very pleased with the performance in the fourth quarter and the year as a whole. Our goal has been and continues to be 15% or greater EPS growth, consistently over time.

We update the goal every year during our strategic planning process, and our plans over the current five-year planning horizon support achievement of the growth through sales growth in both new stores and existing stores, improved operating margins, and capital structure management. We believe that well-managed highly differentiated concepts, which consistently provide a superior guest experience, will continue to deliver the improvements in final performance we built into our plans. And with that I'd like the turn over the call to questions.

Today's question-and-answer session will be conducted electronically. If you would like to ask a question, please press the star key followed by the digit 1 on your touch tone telephone. We will proceed in the order that you signal. If you are using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. Once again, if you would like to ask a question, please press star 1. We will take our first question from Matt DiFrisco with Harris Nesbit. Please go ahead.

Hi, I just have a couple of questions. My first question, regarding Logan's and the franchise development, how many franchisees do you have now, and have you signed up or is there a plan -- in this new development in '04, is this just a continuation of a development plan of an existing franchisee or is this a new developer?

We have two developers, one with territory in Northern California and Oregon, the other one has the Carolinas and the development we're talking about is within those two development agreements.

Okay. And then is that something also that we'd expect to be ramped up? Would you look at taking on new franchisees?

We don't have any plans at this time. We're very focused on the Logan's concept and getting everything moving in the right direction, so we're not spending any time at this point in time thinking about new franchisees.

We like the way the franchisees are performing. They run high-unit volume, so we think we may have a couple of things to learn from them.

Okay, and then I guess just turning to the cash flow statement, it looks as though you're ramping up capex almost by 20 million, yet your store opening schedule in numbers is staying the same. Where is that extra 20 million going towards?

A variety of things. A big part of it is simply timing as we fill our pipeline and look at what we're likely to be spending on '05 stores at the end of '04. We have some increased maintenance sort of projects and replacement sort of projects in the stores, particularly in Cracker Barrel, and we have one project related to some corporate expenditures, which is still up in the air, and that's, I think, a couple million dollars in that number.

And that -- can you give us a little more color on that, the corporate expenditures, what the capex would include?

It actually relates to a motel that we have and use for our management trainees to stay in.

Okay. And then I guess, up a little higher on if cash flow statement it looked like working capital contributed about 60 million favorable cash in-flow for cash to operations. Can you describe what that was, and is that something that -- you did about 40 million in changes in assets and liabilities than a year ago. Is that something we should continue to model for '04 as well?

It's tough to predict exactly what that will do, and we haven't set specific outside objectives on that. I think we've done real well in those working capital management areas in the last couple of years, and I wouldn't expect to see the same sort of improvements. We've had improvement in working capital, we've also had improvements in some of our tax planning, which has helped us to reduce income tax payments, and those things have been big contributors. So I don't at this time expect to see the same sort of contribution going forward from working capital.

Okay, and then lastly, the tax rate stays the same, 35.5, roughly, for '04?

For '04 we may see a slight improvement, up to 10 basis points.

Okay. Thank you.

We will take our next question from Howard Penney with Sun Trust. Please go ahead.

Hi, I was following along on the cash flow questions. You actually burned cash if you include your share purchase program, and I was wondering if you intend to keep that or make it three years in a row where you are going to burn some cash and use your balance sheet? The second question, which is somewhat related and tied into your goals for 2004, is management's computation tied to EPS growth, or at least a part of it, anyway, which, therefore, might forbid you from maybe not buying back as much stock next year and using that cash to pay a dividend instead?

Howard, could you clarify? I don't see how we're burning cash.

Well, I just said 120 million in cap ex, 166 million in share repurchase, and 240 million in cash flow.

How about 60 million in stock option proceeds?

Well, you know, we can -- my definition of cash flow may be a little different than yours.

Wouldn't you think that would contribute to our share repurchases? What was your other question?

Are you considering using your free cash flow to pay a dividend?

That's hypothetical. We really don't know at this time.

Mr. Penny, anything further?

No, that's it. Thank you.

We will go next to Brian Elliott with Raymond James. Please go ahead.

This is David Schamus for Brian. Just got a question regarding labor. Over the past few quarters, looks like labor cost as a percent of sales have decreased year-over-year. I want to know how much visibility you have on this trend continuing over the next few quarters? Thank you.

Well, we think that it can be a contributor here in the future, and we do think we will see some improvements, but our goal continues to be looking for continual incremental improvements in our operating margins from all four components, and that can vary in any given quarter; but we look to all areas, cost of goods sold, labor and related expenses, other store operating expense, and G&A expenses, all as having potential to contribute to that, both through doing things better and through leverage we should get out of comp store sales growth.

Then on the -- specifically with the labor, is it generally about, you know, the same basis point decline, maybe between like 30 and 60? Is that a fair estimate?

Sorry, David Schamus, we don't predict the specific improvements by line item for the future.

All right. Fair enough.

We did say that we expect that our operating margin growth in fiscal '04, we will have operating margin growth, but we expect it to be at a somewhat lower rate than in fiscal '03 versus '02.

Okay. Thank you.

We will take our next question from Dennis Frost with McDonald Investments. Please go ahead.

Good morning, gentlemen. I had a question about number of shares. You had made the comment about option proceeds. You must have issued a fair number of options, or exercised a few options, because the number of shares in the fourth quarter didn't come down almost at all, and I think you bought back almost 2 million shares. Can you give us an idea of the difference between shares outstanding and the diluted shares?

I'll refer you to the press release, Dennis. It gets a little buried. On the last page of the press release, we show actual common shares outstanding at the top.

Yeah, basic shares I see is 48.2, then you mentioned 47.9 today.

Yeah, you're looking, I think, at diluted shares. Is that what you're looking at?

No, the 48.2.

You're looking at the base, at 48 million, 271. Well, look a couple of pages back on the page where we have supplemental information. At the very top of that page you see common shares outstanding at 47.9.

Okay. And that was the number you used.

Right.

Then we probably add a couple million of potential delusion? That looks like what it's been running

And that's tough to give guidance on, because that depends on so many things, including, most importantly, the share price, because the difference between the actual shares outstanding and the shares that go into our delusion calculation are calculated on the treasury method, and that all depends on the share price.

Were most of the shares that were repurchased in the fourth quarter done near the end of the quarter? Because I'm trying to figure -- the average diluted shares were 50.5 million. That was higher than I thought they were going to be.

I don't recall the specific calendarization, but we always cut off our share repurchases the last couple weeks of the quarter where we have a blackout period.

Were there a fair number of option shares exercised during the fourth quarter?

Yeah, and, again, I'm sorry, I don't have the specific number of shares handy.

Okay, then the other question I had had to do with Logan's comps. I think you talked about the first 40 days of this quarter, 1.3 positive comp, and that it was positive traffic. What was the menu impact?

The menu impact for -- this quarter is really minimal. In fact, actually, right now it's, I guess it's slightly negative. We have a negative -- well, the menu impact, per se, is zero. But the average check impact is actually just slightly negative with a negative mix impact.

Oh, it is. Okay. So that the traffic, it's actually a little better than the 1.3?

Correct. Well, we said 1 to 1.5.

Yeah, I kind of used the midpoint.

It's your 1.3 and it's our 1 to 1.5.

Okay. I know I had another question. I'll just get back in the queue. I forget it right now. Thanks a lot, guys.

We will take our next question from Robert Derrington with Morgan Kegan. Please go ahead.

Hi. Mike, Larry, has there been a change in the option program as it relates to your field employees? Can you kind of give us an overview there?

Yes, there has. We historically extended our option [INAUDIBLE] down to our [INAUDIBLE] employees. In the last year, we eliminated that to the hourly's. The reason we did that was, we talked with a whole bunch of them to find out what they wanted, what was important in terms of benefits. Number one was the health program, which is why we continue to pay a lot of attention to that, to make certain it's affordable and working well for them.

And on the option side, generally their behavior was one of treating the options as basically cash bonus. As soon as they earn the money and divested, they turn them in. So we felt it wasn't achieving the original object in. That was a fairly substantial part of our overall option grant over a number of years, which has gone away.

Okay, so essentially they had some input into those changes.

Oh, absolutely.

All right. Second question, along the retail sales line, is there kind of an evolution in the strategy as it relates to particularly mark-up, mark-down strategy and porch sales?

Well, on the mark-up or the initial mark-on, our goal is to see continued improvement as we have over the last several years, in terms of purchasing, buying better, and so on and so forth. In terms of mark-downs, we began during fiscal 2003 in marking down earlier with the seasonal merchandise to stimulate sales, so the net effect is, in fact, we get better margins out of that because we're not marking down after the season is finished, down to 75% mark-downs.

That's been an approach that our planning team has brought in, and it's been very successful for us, and we expect to continue to do that. The porch sales, I think we're just getting better and better at. We started them a couple of years ago and those are aimed at the true clearance, taking the stuff that was discontinued, actually not selling, and we just become better at how we execute them and the timing. Larry mentioned the fact that we ran this one over the Labor Day weekend, which I think was a very smart thing to do, because we had a lot of people moving around, and they took advantage of the porch sale.

It's interesting you mentioned that, because literally around that time, it was almost crazy how busy the porches were around Labor Day. And I'm just wondering, we saw a porch sale over 4th of July, one over Labor Day, could we also expect one around typical high-traffic periods like Thanksgiving?

I don't know specifically about Thanksgiving, but we'll continue to make certain that we do them at times when there's going to be a lot of people around. Maybe not in Michigan at Thanksgiving.

We will take our next question from Joe Buckley with Bear Stearns. Please go ahead.

Thank you. I have a couple of questions as well. Would Mike update on the off-interstate locations, how have they done sales-wise, and I think you said maybe six of the openings this year will be off-interstate. What kinds of sites are working, what kind of sites aren't working?

Well, in general, off-interstate are doing very well. As I mentioned before, there's a little bit different mix between restaurant and retail, which clearly is a result of less travel activity around an [INAUDIBLE], and the travelers tend to buy the retail more than the local folks do. The overall volumes are just fine. We've -- the difference in the business model, obviously, is we don't have the travel component from just a mechanical point of view, how many people going past the high rise see the high rise and stop. But overall the volumes are fine, bottom line is fine. We've been looking at some marketing programs, which I talked about. We've been testing some advertising to support and build continuing increases in sales at those locations.

We'll continue to do that What I was talking about my remarks is the fact that we are unique in dominance on the interstate. There is nothing else out there that has the focus on the interstate. So we're going to continue to focus on building that out. The off interstate is a huge opportunity.

Obviously, there are other places we could go, but we're going to continue making the interstate the major part of what we do, because other folks start running out of things to do are starting to move up the industry. We want to make certain that we're everywhere we can be before anybody tries to do that too much. We don't think anybody can compete with us on the interstate because we're a different kind of equation, and [INAUDIBLE], but nevertheless we want to really reinforce that association with interstate travel that we hear about from all of our guests.

Have you thoughts on the potential number of Cracker Barrels you could do object the interstate, expanded at all?

Well, we've never really -- we never disclosed the number on that. We continue to work on that number, it's a bigger number than we have today, and we think we can grow at the kind of rate we're growing at for a very extended period of time.

Fundamentally, every year we look at a five-year planning horizon, and we look at our potential within that five-year planning horizon to set priorities and just sort of establish targets of where we want to be looking, and we don't see any issues whatsoever during that period, so we don't really know how far it goes.

And we've been doing some backfilling.

We're absorbing a little bit of cannibalization. from which we typically recover, and we build that into our models, but we're kind of dropping in between Cracker Barrels, especially in places like Florida, what we find is if we go in between two high-volume stores, we relieve a little bit of the pressure on those stores, but because we're bound by the length of the wait, that volume pretty quickly rebuilds again. So there are continuing opportunities for doing that.

Go to some of the margin questions ago again. I know you don't want to go line by line, but your thoughts on food costs. I mean, obviously beef costs are up. I know can you've got a lot of contracts in place that -- for other food commodities that expire at different times. What do the contract runoffs look like? Are you thinking food costs? Are we flat up or down in '04?

Well, we do see some pressure there, as I said. The most notable things are, in the longer run, particularly toward the latter half of the fiscal year, some pressure in beef. And that substantially, because we're contracted fully at Logan's and various products at Cracker Barrel through that time. In the near term, we've been seeing some pressure with bacon and eggs, but I think the most notable thing to point out is, we're expecting, and putting into our planning horizon, some pressure in beef in the latter half of the year. Okay. And nothing else looks worrisome to you?

Poultry or ham or any -- I know you're very diversified in terms of what you use, but anything else kind of leap out?

The most notable thing is beef. The others, yeah, there will be some pressures here and there, but the most notable is the potential for beef increases, especially in the last part of the fiscal year.

Okay. Any thoughts on why the breakfast day part has been so good? Well, I guess dinners the soft spot, breakfast is the strong part. Any thoughts on why that would be? Anything you're doing differently in terms of trying to build that day part?

Not doing anything differently. I think we've always felt that of the three day parts, we like to believe we're pretty good at all day parts, but in Cracker Barrel at breakfast, we clearly are at our best, and present an opportunity you can't really get at Cracker Barrel breakfast experience anywhere else, so I think what we're seeing is the appeal of the concept and again the -- I think the travel component. Breakfast is a big travel meal.

So I guess the opportunity is to figure out how we do that more at lunch and dinner, but I don't think there's anything we've done to change, I think it's just a high-appeal occasion.

Lastly, just going back to the dividend question, any thoughts, just philosophically, on dividends? The change in tax laws? Does that influence you more towards dividends? Do you just prefer share repurchase as a way to return capital to shareholders?

Again, the bottom line final answer to that is speculative, and I can't speculate, but dividend decision is impacted by the change in tax law. I will note that the tax law change is not permanent at this point. And so I think there's a lot of difficult and moving parts that go on there. I think our share repurchase plan practice in the last four and a half years or so has benefited all our shareholders phenomenally.

We've given over half a billion dollars to shareholders who wanted to sell to us, and the remaining shareholders have seen their price increase very nicely, not just because of share repurchases, also because our operating performance has improved markedly over that time. So we think it's been a great strategy, and we'll just keep watching and just making decisions about what might happen in the future.

Okay. Thank you.

Thank you.

We will take our next question from Mark Sheridan with Johnson Rice. Please go ahead.

Mike, the question for you on Cracker Barrel retail, in the fourth quarter, retail sales in Cracker Barrel were a little bit stronger than restaurant, and in fact, you mentioned restaurant traffic was a little negative in the fourth quarter, so obviously, the average check was up by the rate of incidence, or the incidence of purchase was up. It sounds like it's probably the latter. Even more pronounced here in the first quarter.

Can you talk about something you said in your comments about your desire to have, you know, your ultimate desire to have every customer buy something from the retail store? Is there any way that you've measured incidence of purchase year-over-year versus the check average year-over-year, and some of the changes that you've made to the retail operation?

Well, internally we focus on [INAUDIBLE] percent of total, which is simply the percent that retail represents of total sales. A more modified version of that would adjust for the check effect in restaurant revenue, so we look at that, and, in fact, we're focusing our incentives plans this year on that, because we've always known, but I guess we really acting on the basis that we're not a destination retailer, we are a captive audience situation and we're going to maximize that. In terms of measuring the incidents, it is not easy, because you can have a party of four who eat together, might split up and separately buy retail, or there might be retail on the check paid for by one person.

It's a very difficult metric to deal with, but I think that the whole -- the breadth of the assortment we have out there now, the price points, and the general acknowledgement that we're not those things; we're also impulse, we want things that people see for $5 or $10, it's an easy simple purchase while they're waiting or walk by, that's the whole focus of what we're doing right now.

Thank you.

Thank you.

We will take our next question from Leonard Green with Cain Anderson. Please go ahead.

Can you talk about -- this question relates to the capital structure management I think you referred to yesterday, the free cash flow that you're throwing off, the decision process between possibly increasing the dividend share repurchases or potentially debt reduction going forward. How would you weight the significance of either of the three?

I think the only really new angle that you've put on that is debt reduction, and I wouldn't see that as being a significant use of cash. Okay.

The next question is cap ex, the increase. When do you see a trending down to more normalized levels? I know you had mentioned ramping up for '05 and '04 store openings, but when do you see it starting to trend back down?

As I think Mike mentioned we think by '05 we will be seeing accelerated growth in the Logan's concept, and potentially see one or two more stores in the Cracker Barrel stores in the out years, so I don't think we're coming back down to the $120 million range. I think that between the accelerated growth and just inflation, that we will probably see cap ex continuing to increase slightly in the out years.

Okay. And on the balance sheet, I think sequentially other long-term debt looks to be up about $30 million or so.

Is part of that the accretion from the zero that's outstanding, or is there something else that's associated with that?

I'm not sure what you're -- are you looking for the long-term obligations?

Looking at other long-term obligations. In May of '03 they were 70 million, this year like 98 million.

Long-term debt is the line above that, and the line above that long-term debt includes the accretion on the convertible debt. The line you're speaking of, other long-term obligations, includes deferred taxes. I touched on our tax planning work that we've done in the last year, which has contributed to our cash flow, so that's one thing you're seeing in there. And that's probably the most significant item in there.

Okay. And going to the potential pressure on margins from the increase in cost of beef, is there any way that you can hedge out that risk at all, or is that something that's completely, you know, not within your control?

Well, we do, in effect, hedge it out in two ways. We contract out for our product with contracts that expire continually through the year. We've had some in some areas that are new in September, and we have some in November and January, et cetera. So that helps.

And the other piece that helps is the Cracker Barrel menu is so diversified that we've been fortunate not to see broad-based changes in commodity prices, and usually where one thing will be a pressure point, something else helps to mitigate that.

Okay.

Sort of an operational hedge, in a way.

Okay. Is there any way you could, say if the contracts, the beef contracts, the hedging mechanisms that are in place, if they just rolled off now, could you quantify what the impact would be on the margins at all? Is it 100 basis points? Is it 200 basis points?

That is really a difficult calculation, which would take a ton of assumptions. I'd rather not do that. I think that we feel pretty optimistic about not only the outlook in our ability to manage the outlook, but we continue to have -- particularly in Cracker Barrel -- various purchasing initiatives going on where they're working with our vendors to find ways to bring product to us at a lower cost, and at the same or better quality. That's been a process that's been going on for a couple of years now and has been quite successful, and it's an ongoing process with a whole list of things that our purchasing people have as their priorities to go after.

Okay. Last question, when does the board convene to consider potentially increasing the common dividend or increasing the size of the share repurchase program? I think you're down to 660,000 shares, 700,000 shares. When do you meet to decide whether or not you're going to take it up or, you know?

I don't think we said we have scheduled a board meeting to decide that. We have regularly scheduled board meetings and we bring up operating and capital matters as appropriate as we go through the year, but I don't want to put the focus on a specific board meeting when a decision is going to be made. We haven't proposed anything at this point. On share repurchases, I think with maybe one exception historically, we've usually announced new share repurchases after existing ones are complete. As we said, we've got approximately 660,000 shares remaining under the most recent authorization.

Thank you.

Thank you.

We will take our next question from Amy Green with [INAUDIBLE] Dale Partners. Please go ahead.

Thanks, guys, but I figure just about every question that has been asked has been answered at this point. Thank you.

Does everybody agree?

We will go next to Janet [INAUDIBLE] with CS First Boston.

Sorry to disappoint you. I actually had a couple of questions.

No disappointment.

Larry, on the margin improvement, did I hear you say you expect improvement in '04 in all four years, so that would mean [INAUDIBLE], labor, operating, and G&A?

I said we see that all areas have the potential over time to contributed to operating margin improvement, and that in any given quarter or even for specific fiscal year we may not see it in a given area, but we feel that all four areas have the potential over time.

Okay. On the working capital changes, and this is just a clarification, did you say it won't continue at this rate of improvement or the absolute dollar amount of the benefit won't continue?

I think some of the dollar improvement that we've had in the last two years is not repeatable. Some of it relates to the tax work we've done, some of it relates to probably some improvements in inventory and other working capital management that we can't duplicate year after year. We are not the kind of business that requires a lot of working capital to grow, so I don't expect to see working capital become a continuing use of cash, but the benefits we've had in the last couple of years, I don't think you can count on them as a rule of thumb.

Okay. Then just two others. On the G&A line, first quarter, if I'm not mistaken, you have a pretty high level of G&A going up against last year from professional fees. So is it fair to assume you will see some nice improvement year-over-year in the first quarter in G&A? And then my last question is, at Logan's, what are you looking for internally to feel comfortable of ramping up the unit growth to 20%? And did you say that maybe by the end of '05, so for fourth quarter '05 you could be up to 20%?

Let me talk to the G&A question. I think there's some potential for G&A to be improved as a percent of revenues in the first quarter. We don't like to get real specific on line item detail in this guidance because things are constantly changing. I think there is some potential as a percent of revenues. I'd be less likely to say that there's potential in terms of dollars.

In terms of the Logan's question, Janice, the primary thing is the whole real estate process. As I indicated earlier on, we've had to kind of dig into that and rebuild it, and filling that pipeline takes some time, just physically finding good sites and making sure we have the process to find good sites. That's part of it.

During that time, we're going to take advantage of that time to take a hard look at our prototype as we work on the brand and the positioning of Logan's, we think there's an opportunity to revisit our prototype, both from a functional point of view, where we see some opportunities to improve efficiency, but also from a brand point of view in terms of what it should be and how it should feel, and especially the bar piece of the business where we're going to be focusing on alcohol.

So we're going to be working on all of that stuff while we're rebuilding the real-estate process. We have every confidence that by doing that we will be able to grow at 20% and have great sites and restaurants that perform really well. We'll also have made certain that we have the people process in place so that we are recruiting, training, and developing the management teams to run those stores.

So it's not a -- there isn't a on a given day we're look at something and that will tell us. We know exactly where we want to go with more of a time rebuilding. What's the change in the real-estate process?

I mean, it sounds like you're tightening the filter. Maybe --.

It's a whole bunch of things. At one level it's a -- we now have a market selection strategy that is built on assumptions about demographics and about competitive levels of advertising support, so that's one piece, so we now have mapped out much more clearly where we want to go with this concept.

And then at the more detailed level, it's putting in a clear analysis process so that we know what we're looking for in a Logan's site, and we're very clear about the factors that have to work for us, to have a go decision on a location, and then at the more mechanical level, it's just having a really good process so that we know exactly what kind of business we're willing to go into and not go into and don't get any surprises.

It's just really the whole thing. We really didn't have a development strategy in the way I just described it in place.

Great. Thanks so much.

Thank you.

We will take a follow-up question from Matt DiFrisco with Harris Nesbit.

Couple of quick questions. Any new markets planned in '04, in either brand? Then the Logan's price increase, I was confused there. Did you imply that does it not get lapped until July of '04, or it just got lapped?

Then I guess along -- just a market question here, your traffic drop-off at the Cracker Barrel brand, do you think there's any -- or have you done any analysis on your McDonald's overlap and McDonald's increased billboard advertising, has that had any effect on you guys, have you seen a [INAUDIBLE] where your market overlaps?

I'll answer the first one. The Cracker Barrel interstate travel occasion is very different than the alternatives. People will choose the alternatives when they want a different kind of occasion, but I don't know that ta many people are choosing between a $3 pie in McDonald's in the drive-through and the Cracker Barrel experience.

In terms of new markets, I don't believe we have new new markets. No real new markets. We probably have a few stores in developmental markets, but it's procedural in core markets, and the developmental markets aren't brand-new locations for us. What was your other question, Matt?

The price increase for Logan's.

Should oh, yeah, the price increase, Logan's lapped their last menu price increase in July, so right now there is zero year-over-year menu pricing. Their average check is actually running down marginally, reflecting some mixed changes.

Okay. Because I thought that when you rolled out the new menu in the spring of '03, that there is a price increase on that new menu.

There were a couple new products, but no price increases.

Okay. Great.

Thank you.

Thank you. We will take a follow-up question from Dennis Frost with McDonald Investments. Please go ahead.

Just a little technical question. On your next release, you said you were going to release in four weeks, Larry?

Correct.

Okay. So that will be 28 days. Also, the numbers you gave us today, quarter to date, they were through -- were they through yesterday or through --.

Actually, the sales were through Tuesday.

Through Tuesday. Okay. A year ago, I think your release after the July quarter was five weeks.

Is there a difference between a four and a five-week month this year versus last? Last year I think you announced on October 17th, and this year you're going to announce on October 9th. I hope I don't have my number wrong there.

Let me go clarify that. It could be mine being wrong. So we'll clarify that.

I thought I had four weeks. Okay. That was my only question. So how will we get a clarification?

We'll put something out. I think you're right, now that you mention it. I think I said -- I think I messed up. Nice catch. That's a first. Larry is looking suitably embarrassed here. My apologies.

That's okay.

We will take a follow-up question from Robert Derrington with Morgan Kegan. Please go ahead.

Mike, could you talk with us for a development strategy about the Old Country Store?

Seems at one point there was a plan to look at most new development being roughly half on and half off the interstate, yet it sounds like the body language we're getting this morning is that there's more of a focus to go out and strictly, you know, stay focused on interstate. Can you give us some percent of what we expect those 24 stores to be?

Yeah, the 24 will be 18 on and 6 off, as we said earlier.

I don't know that it's -- that it's a change so much as a recognition on our part that the on interstate is a continuing opportunity and we don't want to be diverted by the attractiveness of off-interstate from making certain that over a period of time, we're everywhere we can be on interstate. That's what brought us here and that's what we're going to continue to California. Off-enter state works well. We're going to do some this year, six this year, and it's going to continue to work on how do we optimize the opportunity.

As I said, retail is -- sales are more off-interstate. If we can get that retail piece off, then we've got a real premium return from those off-interstate's. So it's not a change in -- from one to the other but more a recognition of the slightly different nature of the two opportunities.

Is the on-interstate, you know, are you implying that the on-interstate are more profitable, the economics of the business better there?

No. The on-interstate thing is more of a brand thing and more of a, let's be absolutely dominant at the thing that we're better than anybody else at.

Okay. There are a few casual dining companies who are trying to focus on the turn out there as well. Is this somewhat based on a competitive nature?

Yeah, I notice people showing up and putting billboards up, but as I say that, occasion is different for a traveler, and we want to give the opportunities to always stop at a Cracker Barrel.

[INAUDIBLE], as far as looking at Logan's and its development strategy is there something about the site selection criteria that you didn't find to be as successful or that it needed to be revised at looking, that's why you're slowing up somewhat?

We're [INAUDIBLE] up for reasons, as I said. One is, when we look at the pipeline and really look very hard at the sites in the pipeline relative to what we now believe to be successful criteria for Logan's, we cut back the number of places we're going to go in the short term. So we're getting a lot more focused and clear about what is a successful Logan's market and site than we were in the past.

No disappointment in the new stores that have opened there?

No, and they're doing fine.

Thank you very much.

Gentlemen, there are no additional questions. Mr. Woodhouse, I'll turn the call back over to you, sir, for closing comments.

Thank you. We thank you all of you again for joining us today. Again, we're very pleased for the year and the quarter, and we look forward to talking to you again as we go through the year and giving you updates.

Thank you. This does conclude today's conference call. We thank you for your participation. You may disconnect at this time.